Los Angeles Explores Direct Infrastructure Investment Strategy for Local Projects

As part of its plan to add real assets investments into its portfolio, the Los Angeles County Employees’ Retirement Association (LACERA) is exploring ways to build its infrastructure program through direct investments, co-investments, separately managed accounts, and club investments to gain exposure. The proposed infrastructure strategies, developed with its consultant Albourne America, also include a direct infrastructure investment in local Los Angeles companies.

This strategy option includes engaging in local co-investment opportunities and using a separate account manager to access direct but non-controlling stakes. The $56.3 billion retirement system adopted a 2%, or $1.1 billion, allocation towards the real asset class last year.

Through a direct infrastructure program, LACERA is seeking to generate risk-adjusted returns in line with non-local investments, while simultaneously benefitting the local community and reducing the management and performance fees usually tied with a general partnership.

A few past Los Angeles-based projects would have been a potential candidate for an investment, such as the Los Angeles International Airport’s Consolidated Rent-a-Car facility and Automated People Mover, which were developed as public-private partnerships.

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At its November 20 board meeting, board members raised a few concerns about such a program, including the potential of local infrastructure entities encountering a conflict between fiduciary duties of seeking returns and public concerns about increasing rates. Another concern was that the public might question the authenticity of fairness of an auction if LACERA wins a local bid, as well as reputational risk from flaws in its invested projects, for example, poor drinking water quality from a water supply it has invested in.

The team intends to build upon its experience gained from co-investment programs in private equity and direct exposure in real estate through separate account managers. All of the direct investment structure types it considered were placed in two categories: capital provider and deal generator.

Capital provider structures include discretionary and non-discretionary co-investments with general partners, separately managed accounts, and direct co-investments. Deal generator structures included club deals, joint venture with operating partners, separately managed accounts through operating partners, and direct (pure) investments.

LACERA’s analysis of these types of investments included research on other pension plans using the “collaborative model,” such as the California State Teachers’ Retirement System (CalSTRS), and the “Canadian model.”

Ideally, the pension will allocate between $700 million and $1.2 billion to infrastructure private fund commitments in 2020 and 2021. It was not made clear through its reports how much it would spend on direct investments.

Tags: Infrastructure, Los Angeles, Los Angeles County Employees Retirement Association (LACERA), Real Assets, Real Estate

If you believe that the stock market responds to the presidential election cycle, or at least to where we are in a chief executive’s term, new research says that now—that is, the third year of the current administration—is historically the best.

In the third year, which is of course 2019, the S&P 500 has been up 81.8% of the time since 1928, according to research firm Bespoke Investment Group. The fourth year, namely when the election happens, is in the black 72.7% of the time. But the first and second years are ahead an identical 56.5%.

That makes sense because administrations tend to push new initiatives in the first half of the term, which may unnerve some investors. What’s more, the stock market advances most of the time historically, aside from some big pratfalls (like 1929, which was year two for Herbert Hoover, and 2008, George W. Bush’s final year).

Bespoke presumably chose 1928 to start its study because the predecessor of the S&P 500 launched in 1926 (it originally was 90 stocks and expanded to 500 in 1957).

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A president’s year three also has the best returns, with an average gain of 12.81%, Bespoke said. By comparison, year four’s showing was pedestrian, at 5.71%, which was close to the increases in the first two years, 5.66% and 4.54%.

So far, the three years of President Donald Trump have kept to the pattern, at least for this year and 2017. Turns out that in 2019 to date, the S&P 500 is ahead 24.5%. Trump’s first year was up 19.4%, but his second was down by 6.2%, as the market slumped in the fourth quarter and barely missed moving into bear territory.

While fears of a recession next year are abating, the US-China trade war or some other event could mess up the buoyant market in 2020. If so, that will be a statistical anomaly.

Looking Beyond The Election

No Recession Before the 2020 Election, Goldman Chief Predicts

Tags: Bespoke Investment Group, Donald Trump, presidential election, S&P 500